Dubai: Air India could finally have a new owner by September - if the latest plans of the Indian government do take off.
The government is inviting bids from those who qualified from the first round of preliminary submissions, including the Tata Group. All of which could finally put an end to a privatisation saga that has consumed a lot of time and effort for the government and all those interested in picking up an airline that has struggled with financial and operational burdens.
A successful takeover of Air India will re-introduce a reinvigorated airline into the global aviation space and capable of serving key destinations. The carrier, once synonymous with India’s presence on the global stage, had seen its fortunes sag as a result of rampant bureaucracy, competition from all over, and changing traveller preferences.
But the new owner will still have to account for a debt load of over $8 billion – unless the government helps out in some way. As per reports, Tata Group, part owner of Vistara and Air Asia India, and SpiceJet's chairman and managing director Ajay Singh have been shortlisted to bid for the carrier.
The name of a UAE-based investor group was also thrown into the mix, but it later came out and denied those reports. “Whoever now acquires Air India will have a tremendous challenge in turning it around,” said Sanjiv Kapoor, senior advisor at Alton Aviation.
Kapoor, who was Vistara’s chief strategy and commercial officer and SpiceJet’s chief operating officer, said it is not just about repairing the balance-sheet, but also fixing Air India’s physical assets and culture and making it more customer-oriented. A new owner should be able to fund losses until the airline starts to generate a positive cashflow – and that may be years away.
Although Air India has lost a lot of market share, Kapoor believes that there is still space for a full-service carrier that serves long-haul routes from India. “India is one of the largest air travel markets in the world already - the growth since the early 2000’s has been phenomenal,” said Kapoor. “A majority of the customer base is for low-cost carriers.
“But there's definitely a place for an Indian full-service carrier.”
Opportunity in a pandemic
Analysts have often questioned the logic of carrying out airline takeovers and mergers during the industry’s lowest point brought on by COVID-19 and the forced cessation of services.
But the revival of Air India and another Indian airline, Jet Airways, cannot depend on a “short-term phenomenon such as restriction of bilateral and Sixth Freedom rights enjoyed by foreign competitors, nor viewed narrowly in terms of the COVID-19 demand downturn” said Kapoor. “In the grand scale of things, this will also pass.”
Back to the parent?
There will be poetic justice if the Tata Group ends up as the new owner. Air India, formerly known as Tata Airlines, was founded in 1932 by J.R.D. Tata. It changed its name to ‘Air India’ and became a public limited company in 1946.
The carrier was nationalized in 1953 but J.R.D. Tata would continue as chairman until 1977. It was all good while he was at the helm. Post-nationalization, the government held a 49 per cent stake in Air India, the public and Tata Sons owned the remaining 51 percent. However, Air India’s real decline began once J.R.D. Tata was fired from his role in 1978 by then Indian Prime Minister Morarji Desai.
“After Tata’s exit, for maybe a total of six or seven years, there were good people running the airline, professionally and fairly independently,” said Kapoor. “But for much of the rest of the time, the airline was run by government-appointed bureaucrats who were not airline professionals, and were not commercially- or customer-focused.
“They just became more and more like any other government undertaking – aircraft cabins were not well maintained, the product was outdated, flights were not on time, (and) customers became the last priority. It became the exact opposite of whatever J.R.D. had put into it.”
Big merger fails
Most market spectators blame Air India’s decline on its merger with India Airlines, the government-owned domestic carrier. Although a transaction involving the two state-owned carriers made a lot of sense, the two companies were vastly different in terms of work culture, areas of operations and working conditions.
Indian Airlines, although quite successful at the start, merely offered a service without any additional conveniences for passengers. On the other hand, Air India, despite its decline, was still a highly-reputed international airline that competed with global majors.
The poor execution of the merger resulted in two cultures and unions that were at odds. “The leadership did not have the freedom, experience, or confidence to take tough decisions to make the merger work the way it was intended,” said Kapoor. “The decline just kept deepening, while the competition, both domestic and foreign, kept growing and becoming stronger.”
Rise of Gulf carriers
Air India did not just face pressures from within. In the past, it was the airline of choice for millions of Indians flying to global destinations like Dubai, London or New York. This was partly due to an all-Indian crew, availability of local food, and an overall familiarity factor.
However, this advantage was snatched from Air India when Emirates airline, Etihad and Qatar Airways rose to dominate air routes from India. Not only did Middle East’s Big 3 crack the Indian hospitality code, passengers found them to be more reliable and consistent in terms of service.
For Air India’s new owner, these will be the legacy issues that needs to be dealt with. Will that happen this September?